Global automakers had written off the compact car as being too thin on profit margins to warrant attention, but the global crunch has evidently made them think again. Toyota and Fiat are even considering the launch of separate brands for their compact vehicles.

The shift in perspective began in China and India. In July, Ratan Tata, chairman of Tata Motors, unveiled the US$2,500 Nano. Renault Nissan decided to develop its own $3,000 car starting in 2011 in a joint project with Indian motorcycle manufacturer Bajaj.

Toyota has teamed up with Japanese small car maker Daihatsu to come up with a $5,000 compact vehicle next year, while GM has joined hands with Shanghai Automotive Industry Corporation (SAIC) to market a subcompact or compact car in China that costs less than $4,000.

Volkswagen, meanwhile, recently acquired a 20 percent stake in Suzuki apparently due to the Japanese carmaker's expertise in small vehicles and extensive network of dealerships in India.

Toyota's super compact iQ on display at the Tokyo Motor Show in October /Bloomberg

Compact cars are growing increasingly popular even in advanced countries due to the global slump and rising prices at the pump. According to market researcher Global Insight, the share of compact car sales to total vehicle sales in the U.S. and Europe rose five percentage points over the past year. In light of these developments, Ford announced it would transform mid-sized car production lines at its Michigan plant to make compact vehicles instead. Toyota decided to market its compact iQ in the U.S. at the end of 2010. Sales of the iQ have already begun in Japan

Compact cars have often become more popular in tough economic times, but because of their low profit margins and consumer preferences for bigger and safer cars in advanced countries, this did not last. But now things are different, experts say. The Chinese and Indian markets, as well as other developing countries with high demand for compact cars, account for a greater share of sales for global automakers, and governments are offering more tax incentives for cars in that segment to lower carbon emission levels.

Hyundai did well even during the crisis because sales of compact cars such as the Accent and Avante increased even though it sold fewer large sedans and SUVs. Some experts say that if the big three U.S. carmakers start to roll out compact cars, Hyundai could receive a blow.

"Competition will intensify in the small car market as global carmakers roll out more models amid increasing demand for such cars in developing countries," said Lee Hang-koo of the Korea Institute for Industrial Economics and Trade. "Korean carmakers must deal with that prospect by aggressively lowering production costs and improving quality."